price to sales ratio

Suncor is new to our Conservative Growth Portfolio. We added it last August after it bought Petro-Canada, one of our long-time recommendations. We avoided Suncor before the merger. Its focus on high-cost oil-sands production made it more volatile than other high-quality oil companies, and left it with more to lose if oil prices fell. However, the Petro-Canada takeover diversified Suncor’s operations. As well, cost savings from the merger will help it fund new oil-sands projects and pay down debt. SUNCOR ENERGY INC. $33 (Toronto symbol SU; Conservative Growth Portfolio, Resources sector; Shares outstanding: 1.6 billion; Market cap: $52.8 billion; Price-to-sales ratio: 1.7; Dividend yield: 1.2%; SI Rating: Average) became Canada’s largest oil company when it bought Petro-Canada (old symbol PCA) on August 1, 2009. Petro-Canada shareholders received 1.28 Suncor shares for each Petro-Canada share they held....

TELUS CORP. (Toronto symbols T $40 and T.A $38; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 333.6 million; Market cap: $13.3 billion; Price-to-sales ratio: 1.3; Dividend yield: 5.0%; SI Rating: Above Average) recently upgraded its wireless networks to handle a wider variety of cellphones, including Apple’s hugely popular iPhone smartphone. These investments are starting to pay off: In the three months ended March 31, 2010, Telus’s earnings rose 2.5%, to $0.83 a share from $0.81 a year earlier. However, revenue in the quarter was unchanged at $2.4 billion. That’s because lower local and long-distance revenue offset higher sales of wireless and Internet services. Telus also raised its quarterly dividend by 5.3%, to $0.50 a share from $0.475. The new annual rate of $2.00 yields 5.0% (5.3% for the non-voting ‘A’ shares)....

ENCANA CORP. $33 (Toronto symbol ECA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 748.7 million; Market cap: $24.7 billion; Price-to-sales ratio: 1.7; Dividend yield: 2.5%; SI Rating: Average) continues to expand its unconventional natural-gas holdings. In May 2010, the company bought 250,000 acres in the Collingwood shale-gas deposit in Michigan. Shale gas is natural gas that is trapped in rock formations. To extract it, companies must pump water and chemicals into the rock. This fractures the rock and releases the natural gas. Early test wells indicate that Collingwood could hold as much gas as Encana’s other major shale-gas holdings in Louisiana and northeastern B.C. Encana paid $37.5 million for this land (all amounts except share price and market cap in U.S. dollars). That’s small next to the $1.2 billion, or $1.57 a share, of cash flow that the company generated in the three months ended March 31, 2010....

Food ingredient costs have been rising, and that’s starting to weigh on these four food companies. However, all four have strong brands and loyal customers. That should let them pass on most of these extra costs. These companies have also been finding ways to improve their productivity. We like all four, but only three are buys right now. TIM HORTONS INC. $34 (Toronto symbol THI; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 176.2 million; Market cap: $6.0 billion; Price-to-sales ratio: 2.7; Dividend yield: 1.5%; SI Rating: Average) is one of Canada’s largest fast-food restaurant chains. Its 3,015 outlets mainly serve coffee and donuts. The company also has 563 stores in the U.S. Franchisees operate 99.5% of Tim Hortons’ coffee-and-donut shops. The company gets about two-thirds of its revenue from supplying these outlets with coffee, baked goods and related items. (Rents and franchise fees account for the remaining third of its revenue.) Tim Hortons owns its own bakeries and warehouses. That gives it strong quality control, and lets it use its buying power to negotiate better ingredient costs....

SHAWCOR LTD. $26 (Toronto symbol SCL.A; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 70.6 million; Market cap: $1.8 billion; Price-to-sales ratio: 1.6; Dividend yield: 1.2%; SI Rating: Average) earned $0.14 a share in the three months ended March 31, 2010. That’s down 68.9% from $0.45 a year earlier. Revenue fell 27.0%, to $224.6 million from $307.5 million, due to a slowdown at its pipeline-coating division. As well, ShawCor’s overseas operations supply 60% of its revenue, and the higher Canadian dollar hurt their contribution. However, ShawCor will begin work on three major projects later this year. These contracts are worth a total of $320 million U.S. That’s why it raised its quarterly dividend by 7.1%, to $0.075 a share from $0.07. The new annual rate of $0.30 yields 1.2%. ShawCor is a buy.

MANITOBA TELECOM SERVICES INC. $29 (Toronto symbol MBT; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 64.7 million; Market cap: $1.9 billion; Price-to-sales ratio: 1.0; Dividend yield: 9.0%; SI Rating: Average) has dropped nearly 20% in the past five months. That’s mainly because of fears that slowing sales of traditional telephone services will force it to cut its quarterly dividend of $0.65 a share, for an annual yield of 9.0%. In 2009, Manitoba Telecom paid $168.1 million of dividends, but its free cash flow (cash flow minus capital expenditures) was just $86.2 million. That meant it had to borrow money to pay the dividend. However, the company has recently made a number of upgrades to its wireless and high-speed Internet networks. These moves should help Manitoba Telecom increase its cash flow as the economy recovers. Moreover, a new dividend reinvestment plan should help conserve cash. Manitoba Telecom is a buy.

PRECISION DRILLING TRUST $7.13 (Toronto symbol PD.UN; Aggressive Growth Portfolio, Resource sector; Units outstanding: 275.6 million; Market cap: $2.0 billion; Price-to-sales ratio: 1.5; No dividends paid since February 2009; SI Rating: Extra Risk) provides contract-drilling services to oil and gas producers. Precision owns 351 drilling rigs, including 202 in Canada, 146 in the U.S. and three in Mexico and other countries. Precision operated an average of 193 rigs in the three months ended March 31, 2010, up 15.6% from 167 a year earlier. That’s mainly because improving oil prices have driven up drilling activity. However, the trust negotiated new rates with some of its customers before the winter drilling season started, so it was unable to take full advantage of the higher demand. As a result, its revenue fell 16.8% in the quarter, to $373.1 million from $448.4 million....

PENGROWTH ENERGY TRUST $11 (Toronto symbol PGF.UN; Aggressive Growth Portfolio, Resources sector; Units outstanding: 290.8 million; Market cap: $3.2 billion; Price-to-sales ratio: 2.2; Dividend yield: 7.6%; SI Rating: Average) plans to convert to a corporation before the end of 2010. However, the trust has $2.8 billion of tax credits it can use to offset the income taxes it will have to pay starting January 1, 2011. As a result, Pengrowth plans to maintain its annual payout of $0.84 a unit for several years. In the three months ended March 31, 2010, Pengrowth’s daily production fell 5.8%, to 6,806 barrels of oil equivalent (which includes natural gas) from 7,226 barrels a year earlier. However, its selling price per barrel rose 17.8%, to $52.49 from $44.57. As a result, Pengrowth earned $0.37 a unit in the latest quarter. That’s a big improvement over the $0.21 a unit it lost a year earlier. Cash flow per unit rose 37.8%, to $0.51 from $0.37....

BANK OF MONTREAL $62 (Toronto symbol BMO; Conservative Growth Portfolio, Finance sector; Shares outstanding: 557.3 million; Market cap: $34.6 billion; Price-to-sales ratio: 2.2; Dividend yield: 4.5%; SI Rating: Above Average) has purchased AMCORE Bank N.A., which is insolvent. AMCORE has 52 branches in northern Illinois and southern Wisconsin. Bank of Montreal will convert these outlets to its Harris Bank banner; Chicago-based Harris is Bank of Montreal’s main U.S. subsidiary. AMCORE has $2.5 billion U.S. of assets, including $2.0 billion U.S. of loans. As of January 31, 2010, Bank of Montreal had $394 billion of assets. The bank did not say how much it paid for these branches. However, in light of AMCORE’s problems, Bank of Montreal likely got a bargain. As well, U.S. banking regulators will cover 80% of AMCORE’s loan losses. That cuts the risk of this purchase....

FORTIS INC. $28 (Toronto symbol FTS; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 172.2 million; Market cap: $4.8 billion; Price-to-sales ratio: 1.3; Dividend yield: 4.0%; SI Rating: Above Average) saw its revenue fall 10.5% in the three months ended March 31, 2010, to $1.1 billion from $1.2 billion a year earlier. That’s mainly because warmer-than-normal weather hurt sales at its Terasen natural-gas distribution subsidiary. However, Fortis’s earnings still rose 8.7%, to $100 million from $92 million a year earlier. Earnings per share rose 7.7%, to $0.56 from $0.52, on more shares outstanding. Recent regulatory decisions let Terasen keep more of its revenue; that was the main reason for the higher earnings. Regulators also let Fortis’s Canadian regulated-power utilities raise their rates. These gains offset lower contributions from the company’s unregulated utilities and holdings in the Caribbean....